Uncertainty on the UK Continental Shelf

Three in four North Sea oil & gas contractors are less confident about their prospects than they were a year ago, according to a new industry report released today (Thursday).

Seventy-five per cent of contractors surveyed said they were less confident in their prospects on the UK Continental Shelf (UKCS) compared to just seven per cent that are more confident.

The findings, from the 24th Oil and Gas Survey conducted by Aberdeen & Grampian Chamber of Commerce in partnership with the Fraser of Allander Institute and sponsored by law firm Bond Dickinson, also reveal a bleak employment situation in the sector.

Oil & gas operators say they have seen a 15 per cent reduction in their UK-based headcount over the past 12 months, and expect a further reduction of 17 per cent over the coming year.

While 42 per cent of firms in the sector cite increasing efficiency / productivity as their main priority, one in four (23 per cent) cites cutting costs as their number one priority.

Just 14 per cent of contractors report that they are working at or above optimum levels in the UKCS, a huge decline since the 79 per cent reported just three years ago.

Global pressures appear to be taking their toll on overseas operations as well, with only one in four firms (27 per cent) working at or above optimum levels overseas – an historic low.

Russell Borthwick, chief executive at Aberdeen & Grampian Chamber of Commerce said: "Respondents have reported falls in activity, but a slightly higher number are working at capacity internationally.

"Looking a year ahead, there is perhaps a shard of light as confidence looks relatively higher for international markets.
"In the previous two surveys we carried out, we found confidence had hit record lows, with an all-time low in November 2015. This time, while the figure is still firmly in negative territory, it has marginally improved, which may perhaps show we are near the bottom of the curve.”

Eighty-five per cent of contractors expect to increase their involvement in decommissioning work over the next three to five years, up from 79 per cent in the previous survey and the highest figure since this question was first asked in 2010.

Uisdean Vass, oil and gas partner at Bond Dickinson, commented: "Sometimes you have to look behind the statistics to see the true picture and that is the case with decommissioning.

"Although decommissioning will offer great opportunities it is like the funeral industry – we want to put it off for as long as possible.

"The uncertainty which all those in the industry face at the moment regarding their livelihoods continues and any slowdown in the shedding of jobs does not appear to be materialising.”

Business constraints
Level of demand (94 per cent), commodity price (95 per cent) and economic climate (95 per cent) are seen as the most important factors constraining contractors’ UKCS activity, followed by complex regulations (68 per cent), taxation issues (70 per cent) and costs of capital (71 per cent).

Skills shortages were seen as a limiting issue by 50 per cent of contractors, and the loss of staff to other companies by 43 per cent.

Investment
These constraints have contributed to a decline in investment expenditure. In the past 12 months, 44 per cent of contractors have reduced their overall investment against just 11 per cent who have increased it.

This trend is expected to continue, with 42 per cent of contractors expecting to reduce their investment over the next two years, compared to just 12 per cent who expect to increase it.

North Sea industry "unfazed” by Brexit
Nearly half of respondents (45 per cent) said it is difficult to reach a clear view about whether a vote in favour of exiting the European Union would be a positive development for the oil & gas sector or not, and a further one in five (20 per cent) said it would make little difference to the sector.

Of those who expressed a firm opinion, the feeling was that remaining in the EU would be the best outcome, with 27 per cent of respondents saying a Brexit would be unhelpful, compared to eight per cent who believed it would be a positive development.

Uisdean Vass added: "One thing about which the majority of the industry is united is the impact of the European referendum.

"Most are ‘unfazed’ at the outcome so, just as with the Scottish independence referendum, operators and contractors have shown they believe constitutional matters have little impact on their businesses.”